Such is the nature of commodity markets, which often fool most people, most of the time. The OPEC cartel was forced to rescue its most precious asset, by slashing oil output one-million bpd in Nov 2006, to put a floor under the "black gold" market.

But perhaps, the real hero behind the latest slide in crude oil is European Central Bank chief Jean "Tricky" Trichet, who has a penchant for fooling most traders, most of the time. The world owes a big debt of gratitude to Trichet and the ECB hawks, for objecting to the reckless strategies of the Federal Reserve, the Bank of Canada and England, who slashed their interest rates in a state of panic, and guided the global economy into the "Stagflation" trap.

Instead, Trichet and the ECB hawks refused to be bullied by politicians into a series of rate cuts, in order to bail-out over-zealous speculators in the Euro-zone stock markets. Instead, the ECB held its repo rate steady at 4% throughout the first-year of the global banking crisis. Then on June 5th, Trichet and the ECB hawks shocked the global markets, by signaling a baby-step rate hike to 4.25%, and guided benchmark German schatz yields to their highest levels in six-years.

If the historic rise in crude oil to $150 /barrel is driven by speculators, as the OPEC cartel and Democrats on Capitol Hill argue, then the world needs a powerful central bank to go against the "Big-Easy" at the US Treasury and the Fed, and the "yen carry" traders at the Bank of Japan, in order to deflate the oil "bubble" with a classic dose of higher interest rates. "The simple fact is that there is nearly $250 billion in America's commodity futures markets that wasn't there just a few years ago," said CFTC commissioner Bart Chilton on July 22nd.

The ECB's surprise rate hike to 4.25% is greasing the skids under the Dow Jones AIG Commodity Index, which has tumbled -15% below its historic high set on July 2nd, including an -18% slide in the agricultural sector. Nymex coal has plunged by $40 /ton. Most importantly, the year-over-year change in the DJ Commodity Index in US$ terms has dropped in half to 20% in just the past two weeks.

Italy's central bank chief Lorenzo Bini Smaghi explained on July 22nd, "This teaches a lesson to those who wanted the ECB to follow the expansionary course taken by the Fed. If the ECB had cut rates, today we would also have a much higher inflation rate. European citizens would have been the first ones to pay for such a mistake. You need to fight back immediately against inflation," he said.

ECB chief Trichet wasn't afraid to engineer a decline in the Euro-zone stock markets, in order to stamp out inflation psychology. "Through the wealth effect, asset prices have an influence on demand, and therefore on future consumer prices.So asset prices are taken into account by central banks," he explained on July 17th. Furthermore, Trichet rejects the Fed's practice of ignoring food and energy prices. "We do not consider core inflation as a good predictor of future inflation," he said. 

So far, the ECB's rate hike to 4.25% has managed to put a lid on the gold market, and helped to deflate North Sea Brent by 14% in euro terms. Commodity traders dumped corn and soybean contracts, which are linked to the energy markets, thru the bio-fuel connection. The speculative shakeout in agriculture and energy markets eased inflation pressures, and ignited a rally in the European Banking Index, rebounding +20% above its panic bottom lows set on July 15th.

German investor confidence had plummeted to a record low, after Germany's DAX Index lost 7% in the first half of July, and 23% this year. There have been several false bottoms in the DAX that have snared bargain hunters into bear market traps. But the latest rebound in the Euro-zone stock markets is based on sounder footing, with renewed hopes for "price stability" set in motion by the ECB.